Fed Keeps Rates Unchanged; Hoenig Remains Lone Dissenter
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Giving a cautious outlook on the US economic recovery Wednesday, the Federal Reserve vowed to keep interest rates at historic lows amid acknowledgment that the European debt crisis does indeed pose a risk to the turnaround.
In a 9-1 decision, the agency said that it has agreed to keep the interest rates at "exceptionally low" levels for an “extended period,” and in doing so, looks to reinvigorate an uninspiring rebound.
"Financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad," the Fed said following the two-day policy meeting.
"The Committee will maintain the target range for the federal funds rate at 0 to 0.25 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period."
For the fourth consecutive meeting, Thomas Hoenig, President of the Federal Reserve Bank of Kansas City, was the lone member to dissent from the agency’s decision to keep the rates at the current microscopic levels.
Hoenig sees a risk in keeping rates too low for too long as it could germinate excessive risky trade by investors and create new speculative bubbles in the prices of stocks, bonds and commodities. He also is concerned that the low interest rates could bring about serious inflation, though signals of that being a reasonable possibility have been absent.
With all this in mind, the Fed still believes that if the low interest rates can spur consumer spending, it will improve the U.S. economy. The strength of the recovery, however, could still hinge on the threat of the European debt crisis threatening to be a contagion.
Stocks remained rangebound throughout much of today's session. Following the release of the statement, the Dow Jones closed up 5 points, while the Nasdaq and S&P fell about 0.3% each.
In a 9-1 decision, the agency said that it has agreed to keep the interest rates at "exceptionally low" levels for an “extended period,” and in doing so, looks to reinvigorate an uninspiring rebound.
"Financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad," the Fed said following the two-day policy meeting.
"The Committee will maintain the target range for the federal funds rate at 0 to 0.25 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period."
For the fourth consecutive meeting, Thomas Hoenig, President of the Federal Reserve Bank of Kansas City, was the lone member to dissent from the agency’s decision to keep the rates at the current microscopic levels.
Hoenig sees a risk in keeping rates too low for too long as it could germinate excessive risky trade by investors and create new speculative bubbles in the prices of stocks, bonds and commodities. He also is concerned that the low interest rates could bring about serious inflation, though signals of that being a reasonable possibility have been absent.
With all this in mind, the Fed still believes that if the low interest rates can spur consumer spending, it will improve the U.S. economy. The strength of the recovery, however, could still hinge on the threat of the European debt crisis threatening to be a contagion.
Stocks remained rangebound throughout much of today's session. Following the release of the statement, the Dow Jones closed up 5 points, while the Nasdaq and S&P fell about 0.3% each.
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